The South African government has embarked on a plan to step up transformation of the economy. Small businesses could be set to win big – but only if the state partners more with the private sector.
Presenting his Budget speech on Wednesday the country’s finance minister Pravin Gordhan (pictured above) said the government would implement a programme of radical economic transformation.
The government essentially wants more black entrepreneurs and small businesses to gain a bigger share of the economy. Last year it embarked on a controversial programme to fund and support black manufacturers (the black industrialist programme: see this post).
Earlier this month President Jacob Zuma said the government plans to this year amend sections of the Competition Act, to open up the market to more players – mainly black Africans who despite making up over three-quarters of the population are still largely excluded from the economy (see this post).
And last month the government gazetted a notice which instructs departments, municipalities and state agencies to try ensure that those that contract with the state sub-contract 30% of the value of contracts to small or black-owned firms (see this post).
Drop in the ocean
It all seems rather promising. Yet beyond this the budget’s current plans are far from radical. The R3.9 billion ($300m) allocated to the Department of Small Business Development over the next three years (half of which will be channelled to the Small Enterprise Development Agency) is a drop in the ocean against the some R5 trillion that the state aims to spend over the same period.
This, while the department’s allocation is expected to grow at an annual rate of 7.1%, from R1.2bn in 2016/17 to R1.6bn by 2019/20 - at a slower pace than total consolidated government revenue, which is projected to grow by 7.9% a year over the period.
The treasury is justified in being cautious with a department that though only set up in 2014, has earned the ire of members of parliament (see this post). What is perhaps more important is how to improve the department’s ability to co-ordinate the reported R15.5bn a year that is channelled to small businesses via municipalities, provincial governments and all national government departments.
The department could perhaps win favour with the treasury if it puts to good use the R91.6m, or 2% of its budget over the medium term, that is allocated to legislative, regulatory and research activities. Better research on the sector and fewer regulations and red tape could help.
There are however some new initiatives. The 2017 Budget Review document notes that the government is reviewing research and development (R&D) incentives which are barely taken up by any small business (see this post).
In addition the government is working on reforms to promote township economies. This includes encouraging the property sector to develop infrastructure such as shops, offices, housing, schools and hospitals.
The treasury is also set to make a R1-billion allocation in 2018 to a small business innovation fund. The National Treasury, and the departments of Science and Technology and Small Business Development, will design this facility. The amount is small. If the state is to make an impact, matching funds from the private sector will have to be found.
Yet the government has not leaped whole heartedly into partnering with the private sector.
Gordhan singled out an initiative with big business (the CEO initiative) which is set to raise R1.5 billion in contributions from the private sector for a small business fund (see this post).
The government however remains mum on what contribution it intends putting in, despite a promise by Deputy President Cyril Ramaphosa that the government will match whatever the private sector contributes.
More than just allocating additional budget to the Department of Small Business and matching big business in its R1.5bn small business fund, the state needs to be bold and step out with more aggressive instruments that incentivise funding and support from the private sector.
The Treasury’s Jobs Funds, the R&D tax incentive, 12J venture capital tax incentive, Technology Innovation Agency’s seed fund and using the BEE codes’ supplier and enterprise development to get big companies to help and buy from more black suppliers show that the state is onto something.
Key is to get these and other instruments to work more effectively to better rope in the private sector to fund and support small businesses. Getting this right could result in a radical economic transformation for South Africa.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
For a list of those schemes mentioned click on the links below:
Stephen Timm is a